An extremist, not a fanatic

May 26, 2014

Opportunity vs redistribution

Hopi Sen says the best response to immmigration is to give "our citizens the skills needed to succeed in a post-manual labour world":

I want a society where every child gets the chances of a Toynbee, or a Miliband, or a Cameron, or a Johnson, or a Dromey, or a Benn...I’m a social democrat. I believe in the ability of every citizen.

I'd love to agree with him, but some things make me sceptical.

First, there's a nasty possibility that many people lack the innate skills to succeed. This thought has been stressed by Greg Clark in The Son Also Rises (well discussed here and here). He points out that social mobility is very low even in modern-day Sweden. He says: "social status is inherited as strongly as any biological trait, such as height." Perhaps, therefore, there are powerful genetic or quasi-genetic reasons why there are so few latte-sipping elitists.

You might reply that the solution to this is to invest more in education. However, there's a big strand of thinking - associated with Eric Hanushek (pdf) - which says that such investments have very low returns. There's a reason why private schools charge huge fees - it's that education is a low-productivity job.

Even researchers who aren't as pessimistic as Hanushek find that big spending has only modest effect.For example, Steve Gibbons and Sandra McNally estimate (pdf) that:

A 30% increase in average expenditure per pupil improved test scores by about 8 points on our 1-100 scale.

It's touch and go whether this is cost-effective in raising future earnings. And I'm not sure whether governments committed to continued austerity would want to increase spending so much even if it did pay off 20 years later.

There's another reason why we'll never get a society in which everyone has the chances of a Miliband or Toynbee. It's that homophily is a powerful force. It was family connections that got Miliband an internship with Tony Benn, and which probably got the university dropout Toynbee her first journalism job. It's hard to see how such advantages can be eliminated.

And let's face it, people naturally want to hire folk in their own image.Sajid Javid's experience of discrimination by the British "elite" chimes with my own: when I was looking for jobs, offers came more readily from US investment banks who couldn't read my outsiderness than it did from British employers. But not everyone can work for Merrill Lynch.

I fear, then, that Hopi is guilty of that typical social democratic flaw, of excessive optimism about the human character.

There is, though, an another solution here - which could run alongside Hopi's efforts to prove me wrong. A more progressive tax and benefit system would help cushion the less skilled from the effects of immigration (and globalization and technical change), and thus ensure that potential Pareto improvements actually do benefit everyone.

Surely the key problem with Hopi's dream is that we don't have (and we're not doing anything) to create an economy with more well-paid or interesting (or both!) jobs.

Mobility may or may not be a big problem - I think if you go back and read some of the critiques of GC's previous book on the middle ages you can see that there are a bunch of problems with his methodology.

Anyway, as I say, the real issue is that we need more opportunities full stop - we need to expand the world of work to match our new level of education, rather than the current situation, where we're helping people develop, but the number of jobs which need "education" hasn't advanced at the same rate.

Of course - a basic income is a good way forward on the track I'm talking about… but I think a recognition of the failure of our economy to advance the number of "better" jobs (better in all sorts of different dimensions) is long overdue.

Sorry Chris, but any argument about cushioning people implies that they might eventually impact with something hard.

I'd argue that social mobility has declined in the last 20 years and that it is harder to get a foot on the ladder. The theoretical necessity for 30% of young people, rising to 50%, entering higher education at age 18 years is/was silly, and the longer that we perpetuate the idea, the more ridiculous it becomes.

In the 1970s, ~10% of young people thought about going for a degree. Some attained a place at university, some dropped out, others found a different way to get on in life. Exam failure was not necessarily a problem because other opportunities were available.

I would not argue the 1970s or 1980s generally as an example for what is desirable now. Apart perhaps from spirit and opportunity to change personal circumstances. The cushion today is hard to find.

If one difference between well-managed (international) firms and traditional (British) firms is that the traditional see education as a positional good (aka measures class) while well-managed see human capital, then the higher productivity and growth of international firms follows (see van Reenen).

@Phil Beesley the UK qualifications profile is now low by OECD standards.

The major issue is whether employers in UK can make the full use of the skills available to them.

Hopi believes that the working class needs be rescued, both from the evils of history ("the decline of the industrial society") and the defensive condescension of their betters (the "latte-sipping elitists"). Mutatis mutandis, this would have been a stock progressive attitude 200 years ago.

I suppose the logical consequence of our future industrial base and job market is that some sort of redistribution is necessary. The difficulty is moral hazard and selling the necessity to those who pay for it. For human beings at every level will take the piss at every opportunity and any programme or policy that does not take this firmly into account is putting up a large sign - 'trough is this way'. Just ask our MPs.

There may be policies that could make all better off and none worse off. Nothing wrong with trying to find them.

But Hopi and other Blairistas need to accept the need for redistribution as well. The social democrat left and the American Democrats have run away from any willingness to demand sacrifice from the well off. Or indeed any willingness to reject the hard money policy supported by the deregulated finance industry. At the level of concrete economic policy they are lame and unconvincing.

Hopi starts well but ends up with comfortable bromides about how more graduates will fix everything, ignoring that his political mates have been banging this drum since the early 90s and it's not worked.

I mean, the idea that neoliberalism is OK with enough education spending is basically Bill Clinton in the bond-market-is-king early years before the transition to pushing-the-limits-of-growth.

The genetic component of IQ and all its attendant benefits has been well known for decades. It's somewhere north of 60%. The half of the population with IQ below 100 are not really college material, are they? Continuing to blame them for their situation is cruel - and pointless. Until we pay a decent wage to people who work diligently for 40 hours a week our economy will be broken.

"...You might reply that the solution to this is to invest more in education..."

Given that education is always a good, we are left with the problem of too few paid jobs, and too low a pay scale for the jobs that exist. Making drowning sailors better swimmers does not increase the number of seats in the lifeboat.

This derives from the current necessity that a person, talented or not, needs to find a buyer -- a person or business willing to exchange credit for the person's effort and time. The job providers -- that is, the owners of the lifeboats -- have no real need to let any more sailors on board.

A wiser, more educated population with a modest but reliable source of sustenance is a good in itself, for individuals and for the nation. Sure beats outfitting people with expensive climbing spurs, the better to climb over their less-well-equipped drowning mates.

"There is, though, an another solution here - which could run alongside Hopi's efforts to prove me wrong. A more progressive tax and benefit system would help cushion the less skilled from the effects of immigration (and globalization and technical change)"

I don't know who's more social democratic and liberal in outlook here - Sen 'Blair' or the writer! Globalisation - and high tech development - continuing much further and longer? I don't think so (this really needs examining instead of assuming). Amelioration of increasing inequality and its impacts by tax and benefit in conjunction with education? Not wrong as a tactic but as a strategy?

Can't we please be a bit more radical and look at issues in a longer time frame?

I pretty much read your blog in awe. But this time I have to disagree. I hate to make the data point of one argument, but here goes. My parents could contribute nothing toward my education. It took me 20 years of working long hours at very low paying jobs and sneaking in classes when I could to earn my bachelors. When I did I graduated with honors from a tier one university. I believe I had the innate talent to have graduated in four years had I had the support. There is no useful way to extrapolate from a single experience, but I can't be the only one with innate talent and no support. The years I spent working hourly at manual labor that anyone could have done instead of something that required innate talent are lost to the economy, and to my own personal fortune never to be recovered. I hope you will reconsider your position.